February 29, 2008
- Seattle, Washington

NTSB: FAA hasn't enacted recommendations for Boeing jetsBoeing employees work on the 777 airplane assembly line in this Jan. 31, 2007 file photo in Everett, Wash.Story Published: Feb 4, 2008 at 7:23 AM PST Story Updated: Feb 4, 2008 at 7:23 AM PST By Associated PressWASHINGTON (AP) -

The Federal Aviation Administration has yet to implement recommendations stemming from several instances in which smoke was reported in the cockpit of a Boeing 757 aircraft, the National Transportation Safety Board said Friday.In response, the FAA said that Boeing has already notified carriers of the problem and how to fix it.On Wednesday, an American Airlines B757-200 flying from San Juan, Puerto Rico, to Philadelphia made an emergency landing in West Palm Beach, Fla., because of cockpit smoke. Several of those aboard - the flight carried 139 passengers and seven crew members - were treated at a hospital for smoke inhalation, the NTSB said.While that incident was still under investigation, the NTSB noted five incidents between 2004 and 2006 in which smoke, and in some cases fire, was reported to have originated from window heating systems in B-757 aircraft.In September, the NTSB issued two safety recommendations to the FAA asking the agency to require the installation of redesigned window heating systems in all Boeing 747, 757, 767 and 777 series aircraft. The recommendations have not been implemented, the NTSB said.FAA spokesman Les Dorr said Friday night that Boeing in recent weeks had issued a service bulletin, a voluntary notice that Dorr said addresses the most urgent safety issues. The FAA expected to issue an air worthiness directive, which mandates action, in the next few months, he said.The Boeing service bulletin did not include the 747 series, Dorr said, adding that the FAA was in discussions with Boeing regarding that model.The crew aboard the flight originating in San Juan said that while at cruise altitude over the Atlantic Ocean, smoke began emanating from the window heating system connected to the first officer's windshield, the NTSB said. The crew donned oxygen masks and smoke goggles and diverted to Palm Beach International Airport.During the descent to land, the inner pane of the first officer's windshield shattered, the NTSB said. The crew continued the descent and landed without further incident.Cabin smoke also forced an American Airlines Boeing 757 to make an emergency landing in Grand Junction, Colo., on Wednesday night, but officials say no fire was found. The plane was carrying 103 passengers and seven crew from Newark, N.J., to Los Angeles.

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Boeing loses $35 billion Air Force tanker contract
Related Content
· Wash. officials disappointed, outraged at loss
· Boeing workers protest Air Force decision
Story Published: Feb 29, 2008 at 1:32 PM PST
Story Updated: Feb 29, 2008 at 6:19 PM PST
By KOMO Staff & News Services


WASHINGTON - The Boeing Co. suffered a major blow Friday as the U.S. Air Force awarded Northrop Grumman Corp. and a European partner a $35 billion contract to build airborne refueling planes.

Boeing spokesman Jim Condelles said the company is disappointed but has not yet made a decision about whether to appeal the award.

Boeing had planned to use the 767 airframe for the tanker, which is built at Everett. The planes would have been turned into tankers in Wichita, Kan.

The selection of Los Angeles-based Northrop Grumman and European Aeronautic Defence and Space Co., the maker of Airbus planes, surprised industry and elected officials. Chicago-based Boeing, which has been supplying refueling tankers to the Air Force for nearly 50 years, had been widely expected to hang onto that monopoly.

Air Force officials said the larger size of the Northrop-EADS aircraft helped tip the balance in its favor.

The contract to build up to 179 aircraft - the first of three awards worth up to $100 billion over 30 years - opens up a huge new opportunity for Northrop Grumman.

"They don't come along at this scale very often," Northrop Grumman Chairman and CEO Ronald Sugar said. "We do see this as being a very important component of our business for many years to come."

The deal also positions EADS to break into the U.S. military market.

In after-hours trading, shares of Northrop initially surged more than 5 percent before retreating to $78.83, an increase of 22 cents. Boeing's stock price fell $2.64 to $80.15.

The Northrop-EADS refueling tanker, the KC-45A, "will revolutionize our ability to employ tankers and will ensure the Air Force's future ability to provide our nation with truly global vigilance, reach, and power," Air Force Gen. Duncan J. McNabb said in a statement.

Air Force officials offered few details about why they choose the Northrop-EADS team over Boeing since they have yet to debrief the two companies. But Air Force Gen. Arthur Lichte said the larger size was key. "More passengers, more cargo, more fuel to offload," he said.

"It will be very hard for Boeing to overturn this decision because the Northrop plane seemed markedly superior" in the eyes of the Air Force, said Loren Thompson, a defense industry analyst with Lexington Institute, a policy think tank. And as the winners of the first award, EADS and Northrop are in a strong position to win two follow-on deals to build hundreds of more planes.

Boeing spokesman Jim Condelles said the company won't make a decision about appealing the award until it is briefed by Air Force officials. Boeing believes it offered the best value and lowest risk, he said.

Stifel, Nicolaus & Co. analyst Troy Lahr said in a research note it was surprising the Northrop-EADS team won given the estimated $35 million per-plane savings offered by Boeing. Lahr estimated the Boeing aircraft would have cost $125 million apiece. "It appears the (Air Force) chose capabilities over cost," Lahr said.

Military officials say the Air Force is long overdue to replace its air-to-air refueling tankers, which allow fighter jets and other aircraft to refuel without landing. The service currently flies 531 Eisenhower-era tankers and another 59 tankers built in the 1980s by McDonnell Douglas, now part of Boeing.

But the new contract has emerged as a major test for the Air Force, which is trying to rebuild a tattered reputation after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing.

The tanker deal is also certain to become a flashpoint in a heated debate over the military's use of foreign contractors since Boeing painted the competition as a fight between an American company and its European rival. Lawmakers whose districts stood to gain jobs from a Boeing win were pressing this point on Friday.

"We should have an American tanker built by an American company with American workers," said Rep. Todd Tiahrt, R-Kan., who represents the district in Wichita where Boeing would have done much of the tanker work.

"This is unfortunate news for Boeing and the state of Washington," said Gov. Chris Gregoire. "Boeing and its workers build the best planes in the world. They will continue to enjoy great success with their 787 Dreamliner and other innovative products still to come.

"In the coming days, Boeing executives will be debriefed by the Department of Defense on what happened," she added. "I look forward to hearing from Boeing on the results of that briefing."

"We’re profoundly disappointed by the news," said U.S. Rep. Jim McDermott, D-Seattle. "We’re proud of our hometown Boeing team, proud of the airplanes they build, and the quality and commitment that are beyond equal."

"Some questions have been raised about new criteria being introduced late in the process and so we will withhold judgment until we learn more about the claims and potential impact," he added.

In Everett, Wash., a few dozen Boeing workers protested outside a Machinists Union hall holding up signs saying "American workers equal best tankers," and "Our military deserves the best."

The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Ala., although the underlying plane would mostly be built in Europe. And it would use General Electric engines built in North Carolina and Ohio. Northrop Grumman, which is based in Los Angeles, estimates a Northrop/EADS win would produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.

"I've never seen anything excite the people of Mobile like this competition," Sen. Jeff Sessions, R-Ala., said. "We're talking about billions of dollars over many years so this is just a huge announcement."

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Former FAA officials sentenced in procurement fraud

Story Published: Dec 14, 2007 at 8:42 PM PST
Story Updated: Dec 14, 2007 at 8:42 PM PST
By Associated Press
SEATTLE (AP) - A former procurement officer for the Federal Aviation Administration was sentenced Friday to community service for violating the law during a contract award in a case the judge said illustrated a skewed culture in the agency.

"It appears the whole agency has run afoul of what their duty is as a government agency, which is, of course, to follow the rules, be transparent, be honorable, and be uninfluenced by biases that are not helpful to the bidding process," U.S. District Judge Marsha J. Pechman said at the sentencing of Robert Ferrell.

"I find it troubling that the whole milieu appears to have sunk to a very low common denominator."

Ferrell, 48, of Renton, was sentenced to 200 hours of community service and three years of probation.

He pleaded guilty in September to procurement fraud in connection with a conspiracy to steer a 2002 contract for airport lighting to a company that was not the original low bidder.

The $4.3 million contract was to install a "high intensity approach lighting system" at Seattle-Tacoma International Airport.

After one company, Donald B. Murphy Contractors Inc., submitted the lowest bid, Ferrell and his co-conspirator, Vicki Lynn Olson, removed the contracting officer from the project and made Ferrell the new contracting officer to ensure the project would be awarded instead to PCL Construction Services Inc., the U.S. attorney's office said in a news release.

Ferrell, who worked in the FAA's Renton office, invited PCL to revise its bid and told the company the price difference between its bid and the winning bid, the news release said. PCL then submitted a revised bid that was $4,300 lower than the one from Donald B. Murphy Contractors, and the contract was awarded to PCL.

Pechman said she was "appalled" that other FAA employees had written to her on Ferrell's behalf, trying to justify his behavior.

"When the people you are supposed to be evaluating start taking you out for golf, buying you banquets and currying your favor, that's exactly when you need to run from them and step back and say, 'I have to make this contract based upon other criteria,"' Pechman said. "FAA employees shouldn't be taking a cup of coffee from anybody who is bidding on these contracts. ... I am sad to see that there are still people in the office that think there was nothing wrong."

Olson, 51, of Kent, pleaded guilty in February to conspiracy and procurement fraud and was sentenced earlier this week to 200 hours of community service and three years of probation.

Olson and Ferrell no longer work for the FAA, the news release said.

PCL paid a $1 million fine to the government, plus $750,000 in restitution to Donald B. Murphy Contractors.

A spokesman for the FAA Northwest Region, Allen Kenitzer, said Friday night he could not comment on the judge's remarks until he had a chance to review them.

----------------------------------------------------------------------

Northrop beats out Boeing, wins tanker deal

By JAMES WALLACE, ERIC ROSENBERG, CRAIG HARRIS, ANDREA JAMES AND JOSEPH TARTAKOFF
P-I REPORTERS

In a stunning upset for The Boeing Co., the Air Force has chosen a team of Northrop Grumman Corp. and Airbus parent EADS to supply air-refueling tankers in a closely watched, much debated and hard-fought competition.

Air Force Secretary Michael Wynne announced the award for up to 179 tankers on Friday.

Friday's announcement ended a week of suspense around what is likely to be one of the largest U.S. military acquisitions for years to come. The contract could be worth as much as $40 billion over the next 10 to 15 years. Boeing had offered a tanker based on its twin-engine 767 jetliner that would have been built in Everett.
David Muellenbach, a 12-year Boeing employee doing quality-assurance work on Boeing's 767 line, said of the decision: "It is a shock. It's a sad day for Boeing. What can we do?"

Answering his own question, he speculated that Boeing could perhaps get some piece of the deal.

An appeal by the losing side is considered likely.
Sue Payton, assistant secretary of the Air Force for acquisition, said that "disappointed" contractors "under statute are allowed to protest and we should be knowing more about this in the March-April time frame."

Payton said she would not assess the differences between the proposals until after briefing Boeing.
Gen. Arthur Lichte, commander of Air Mobility Command, urged quick action to carry out the contract, saying that expected protests "slow down the process" of production. McNabb added: "From the war fighters' point of view, we need to get on with this."
Gov. Chris Gregoire and other Washington politicians expressed great disappointment in the Air Force's decision. The governor earlier in the week raised the possibility of a congressional inquiry or a formal legal protest if Boeing lost.

A spokesman for the governor Friday said she was going to reserve judgment until she personally spoke with Boeing executives and meets with the congressional delegation.

"Until we know a little more why Boeing lost we can't make any further comments," said Mike Gowrylow, a governor's spokesman.
Analysts who monitor the company said the Air Force's decision was a huge blow to Boeing and its shareholders.

"As a result of this decision, we are looking at the end of the road for the 767 line in the near future because commercial demand for that plane has waned fairly rapidly," said Loren Thompson, a defense analyst with the Lexington Institute, a public policy think tank
Thompson said the loss will lead investors to question the company's management, and he added the decision will "provide a political firestorm among Boeing supporters on Capitol Hill."
He added that the decision would be difficult to overturn if an appeal occurred.

Richard Aboulafia of the Teal Group in Fairfax, Va., said the decision was not "what anyone expected" because Chicago-based Boeing had the home team and incumbent advantage. He said there is very little historical precedent that a protest would result in overturning an award.

Los Angeles-based Northrop and the European Aeronautic Defense and Space Co., the parent of Airbus, are offering an Airbus A330 jet that would be modified into a tanker at a factory to be built in Mobile, Ala. EADS recently announced that it would also assemble A330 commercial freighters in Mobile if it won the tanker competition. That would boost the company's U.S. footprint, help it with the Airbus bottom line and gain the European defense giant more powerful friends in Congress.

Although Boeing was considered the heavy favorite, Northrop and its supporters, especially politicians in Alabama, argued that the bigger Airbus plane would make a superior tanker to the 767 offered by Boeing.

Business leaders and politicians in Mobile, Ala., say that the win will turn the region into an aerospace hub on par with Seattle.
The Gulf Coast city of about 200,000 people will have to build up a work force of 1,200 aerospace engineers, assembly workers and designers. That does not include Airbus' existing engineering center in Mobile, which has 65 people and is trying to ramp up to 150 by 2009.

When asked to characterize the sentiment in the office Friday, Mobile Area Chamber of Commerce spokeswoman Leigh Perry-Herndon said: "Oh my gosh, I mean, joy, elation, surprise, excitement. There's so much happening here and the news just keeps getting better and better and better; you almost have to pinch yourself."

Many of the roads and buildings needed to accommodate the tanker program in Alabama do not yet exist.
The local city and county has dedicated about $25 million in incentives and infrastructure improvements, contingent on Northrop winning the contract, Mobile Mayor Sam Jones said.

"This is really a community-changing announcement for us," he said.
The decision also is a boost to EADS in establishing a key foothold in the global tanker market. EADS has won several international tanker competitions, in which the A330 was picked over the 767, but the total orders for its tanker had been small. The U.S. Air Force has nearly 600 tankers, more than double the number of the rest of the world combined.

Boeing has enjoyed a monopoly on building tankers for the U.S. military. Before the jet age and the KC-135, Boeing supplied the U.S. military with a tanker based on its B-29 bomber.
Mark McGraw, vice president of Boeing's tanker program, said several weeks ago that if Boeing lost, it would be out of the tanker business "for quite some time." Boeing would likely close down its 767 line once the remaining commercial jets on order are completed around 2012.

After the announcement Friday, quality-assurance lab technician Sandy Hastings was helping transform a Machinists' union hall in Everett from a party room to a backdrop for a protest outside.
"The American Dream -- Bring It Home," read a huge poster behind the podium. Other freshly made posters around the room read, "R.I.P., U.S.-built Tanker -- 1930-2008," and, "We Will Get a New Tanker -- Made in France??"

"My family is in the military, and the fact that they'd send something for the military somewhere else rather than here ... ," Hastings said, trailing off.
Outside the union hall, six more workers held signs urging their colleagues to come inside and protest. Allen Neph, one of those workers, said word of the decision spread quickly among his colleagues, and he summed up their feelings with one word: disgust.
"It means a lot of jobs could be going away because our government chooses to pick another company," Neph said.
The promise of a tanker contract worth tens of billions of dollars -- perhaps up to $100 billion if the Air Force replaces its entire current tanker fleet with new jets -- has taken years to play out, and had a little of everything, from defense rivals Boeing and EADS trading trans-Atlantic punches to a procurement scandal that reached into Boeing's corporate offices.

Along the way, there has been endless debate, controversy and countless claims about whose tanker was better, the 767 or A330.
The initial contract is to be the first of three tanker procurement competitions the Air Force plans as it seeks to replace its entire tanker fleet with perhaps as many as 500 new planes. Congress, of course, would have to approve funding.
In after-hours trading, shares of Northrop climbed $3.74 to $82.37, while Boeing's stock price fell $2.59 to $80.10.

P-I aerospace reporter James Wallace can be Reached at 206-448-8040 or jameswallace@seattlepi.com. Read his Aerospace blog at blog.seattlepi.com/aerospace.

Northrop beats out Boeing, wins tanker deal
By JAMES WALLACE, ERIC ROSENBERG, CRAIG HARRIS, ANDREA JAMES AND JOSEPH TARTAKOFF
P-I REPORTERS

In a stunning upset for The Boeing Co., the Air Force has chosen a team of Northrop Grumman Corp. and Airbus parent EADS to supply air-refueling tankers in a closely watched, much debated and hard-fought competition.
Air Force Secretary Michael Wynne announced the award for up to 179 tankers on Friday.
Friday's announcement ended a week of suspense around what is likely to be one of the largest U.S. military acquisitions for years to come. The contract could be worth as much as $40 billion over the next 10 to 15 years. Boeing had offered a tanker based on its twin-engine 767 jetliner that would have been built in Everett.
David Muellenbach, a 12-year Boeing employee doing quality-assurance work on Boeing's 767 line, said of the decision: "It is a shock. It's a sad day for Boeing. What can we do?"
Answering his own question, he speculated that Boeing could perhaps get some piece of the deal.
An appeal by the losing side is considered likely.
Sue Payton, assistant secretary of the Air Force for acquisition, said that "disappointed" contractors "under statute are allowed to protest and we should be knowing more about this in the March-April time frame."
Payton said she would not assess the differences between the proposals until after briefing Boeing.
Gen. Arthur Lichte, commander of Air Mobility Command, urged quick action to carry out the contract, saying that expected protests "slow down the process" of production. McNabb added: "From the war fighters' point of view, we need to get on with this."
Gov. Chris Gregoire and other Washington politicians expressed great disappointment in the Air Force's decision. The governor earlier in the week raised the possibility of a congressional inquiry or a formal legal protest if Boeing lost.
A spokesman for the governor Friday said she was going to reserve judgment until she personally spoke with Boeing executives and meets with the congressional delegation.
"Until we know a little more why Boeing lost we can't make any further comments," said Mike Gowrylow, a governor's spokesman.
Analysts who monitor the company said the Air Force's decision was a huge blow to Boeing and its shareholders.
"As a result of this decision, we are looking at the end of the road for the 767 line in the near future because commercial demand for that plane has waned fairly rapidly," said Loren Thompson, a defense analyst with the Lexington Institute, a public policy think tank
Thompson said the loss will lead investors to question the company's management, and he added the decision will "provide a political firestorm among Boeing supporters on Capitol Hill."
He added that the decision would be difficult to overturn if an appeal occurred.
Richard Aboulafia of the Teal Group in Fairfax, Va., said the decision was not "what anyone expected" because Chicago-based Boeing had the home team and incumbent advantage. He said there is very little historical precedent that a protest would result in overturning an award.
Los Angeles-based Northrop and the European Aeronautic Defense and Space Co., the parent of Airbus, are offering an Airbus A330 jet that would be modified into a tanker at a factory to be built in Mobile, Ala. EADS recently announced that it would also assemble A330 commercial freighters in Mobile if it won the tanker competition. That would boost the company's U.S. footprint, help it with the Airbus bottom line and gain the European defense giant more powerful friends in Congress.
Although Boeing was considered the heavy favorite, Northrop and its supporters, especially politicians in Alabama, argued that the bigger Airbus plane would make a superior tanker to the 767 offered by Boeing.
Business leaders and politicians in Mobile, Ala., say that the win will turn the region into an aerospace hub on par with Seattle.
The Gulf Coast city of about 200,000 people will have to build up a work force of 1,200 aerospace engineers, assembly workers and designers. That does not include Airbus' existing engineering center in Mobile, which has 65 people and is trying to ramp up to 150 by 2009.
When asked to characterize the sentiment in the office Friday, Mobile Area Chamber of Commerce spokeswoman Leigh Perry-Herndon said: "Oh my gosh, I mean, joy, elation, surprise, excitement. There's so much happening here and the news just keeps getting better and better and better; you almost have to pinch yourself."
Many of the roads and buildings needed to accommodate the tanker program in Alabama do not yet exist.
The local city and county has dedicated about $25 million in incentives and infrastructure improvements, contingent on Northrop winning the contract, Mobile Mayor Sam Jones said.
"This is really a community-changing announcement for us," he said.
The decision also is a boost to EADS in establishing a key foothold in the global tanker market. EADS has won several international tanker competitions, in which the A330 was picked over the 767, but the total orders for its tanker had been small. The U.S. Air Force has nearly 600 tankers, more than double the number of the rest of the world combined.
Boeing has enjoyed a monopoly on building tankers for the U.S. military. Before the jet age and the KC-135, Boeing supplied the U.S. military with a tanker based on its B-29 bomber.
Mark McGraw, vice president of Boeing's tanker program, said several weeks ago that if Boeing lost, it would be out of the tanker business "for quite some time." Boeing would likely close down its 767 line once the remaining commercial jets on order are completed around 2012.
After the announcement Friday, quality-assurance lab technician Sandy Hastings was helping transform a Machinists' union hall in Everett from a party room to a backdrop for a protest outside.
"The American Dream -- Bring It Home," read a huge poster behind the podium. Other freshly made posters around the room read, "R.I.P., U.S.-built Tanker -- 1930-2008," and, "We Will Get a New Tanker -- Made in France??"
"My family is in the military, and the fact that they'd send something for the military somewhere else rather than here ... ," Hastings said, trailing off.
Outside the union hall, six more workers held signs urging their colleagues to come inside and protest. Allen Neph, one of those workers, said word of the decision spread quickly among his colleagues, and he summed up their feelings with one word: disgust.
"It means a lot of jobs could be going away because our government chooses to pick another company," Neph said.
The promise of a tanker contract worth tens of billions of dollars -- perhaps up to $100 billion if the Air Force replaces its entire current tanker fleet with new jets -- has taken years to play out, and had a little of everything, from defense rivals Boeing and EADS trading trans-Atlantic punches to a procurement scandal that reached into Boeing's corporate offices.
Along the way, there has been endless debate, controversy and countless claims about whose tanker was better, the 767 or A330.
The initial contract is to be the first of three tanker procurement competitions the Air Force plans as it seeks to replace its entire tanker fleet with perhaps as many as 500 new planes. Congress, of course, would have to approve funding.
In after-hours trading, shares of Northrop climbed $3.74 to $82.37, while Boeing's stock price fell $2.59 to $80.10.
P-I aerospace reporter James Wallace can be Reached at 206-448-8040 or jameswallace@seattlepi.com. Read his Aerospace blog at blog.seattlepi.com/aerospace.
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WASHINGTON - The Air Force on Friday awarded Northrop Grumman Corp. and a European partner a $35 billion contract to build airborne refueling planes, delivering a major blow to Boeing Co.
The selection of Los Angeles-based Northrop Grumman and European Aeronautic Defence and Space Co., the maker of Airbus planes, surprised industry and elected officials. Air Force officials said the larger size of the Northrop-EADS aircraft helped tip the balance in its favor.
Chicago-based Boeing, which has been supplying refueling tankers to the Air Force for nearly 50 years and had been widely expected to hang onto that monopoly, could protest the decision, though the company said no decision has been made.

The contract to build up to 179 aircraft —the first of three awards worth up to $100 billion over 30 years — opens up a huge new opportunity for Northrop Grumman.
"They don't come along at this scale very often," Northrop Grumman Chairman and CEO Ronald Sugar said. "We do see this as being a very important component of our business for many years to come."
The deal also positions EADS to break into the U.S. military market.
In after-hours trading, shares of Northrop initially surged more than 5 percent before retreating to $78.83, an increase of 22 cents. Boeing's stock price fell $2.64 to $80.15.
The Northrop-EADS refueling tanker, the KC-45A, "will revolutionize our ability to employ tankers and will ensure the Air Force's future ability to provide our nation with truly global vigilance, reach, and power," Air Force Gen. Duncan J. McNabb said in a statement.
Air Force officials offered few details about why they choose the Northrop-EADS team over Boeing since they have yet to debrief the two companies. But Air Force Gen. Arthur Lichte said the larger size was key. "More passengers, more cargo, more fuel to offload," he said.
"It will be very hard for Boeing to overturn this decision because the Northrop plane seemed markedly superior" in the eyes of the Air Force, said Loren Thompson, a defense industry analyst with Lexington Institute, a policy think tank. And as the winners of the first award, EADS and Northrop are in a strong position to win two follow-on deals to build hundreds of more planes.
Boeing spokesman Jim Condelles said the company won't make a decision about appealing the award until it is briefed by Air Force officials. Boeing believes it offered the best value and lowest risk, he said.
Stifel, Nicolaus & Co. analyst Troy Lahr said in a research note it was surprising the Northrop-EADS team won given the estimated $35 million per-plane savings offered by Boeing. Lahr estimated the Boeing aircraft would have cost $125 million apiece. "It appears the (Air Force) chose capabilities over cost," Lahr said.
Military officials say the Air Force is long overdue to replace its air-to-air refueling tankers, which allow fighter jets and other aircraft to refuel without landing. The service currently flies 531 Eisenhower-era tankers and another 59 tankers built in the 1980s by McDonnell Douglas, now part of Boeing.
But the new contract has emerged as a major test for the Air Force, which is trying to rebuild a tattered reputation after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing.
The tanker deal is also certain to become a flashpoint in a heated debate over the military's use of foreign contractors since Boeing painted the competition as a fight between an American company and its European rival. Lawmakers whose districts stood to gain jobs from a Boeing win were pressing this point on Friday.
"We should have an American tanker built by an American company with American workers," said Rep. Todd Tiahrt, R-Kan., who represents the district in Wichita where Boeing would have done much of the tanker work.
In Everett, Wash., a few dozen Boeing workers protested outside a Machinists Union hall holding up signs saying "American workers equal best tankers," and "Our military deserves the best."
The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, Ala., although the underlying plane would mostly be built in Europe. And it would use General Electric engines built in North Carolina and Ohio. Northrop Grumman, which is based in Los Angeles, estimates a Northrop/EADS win would produce 2,000 new jobs in Mobile and support 25,000 jobs at suppliers nationwide.
"I've never seen anything excite the people of Mobile like this competition," Sen. Jeff Sessions, R-Ala., said. "We're talking about billions of dollars over many years so this is just a huge announcement."
Last updated February 29, 2008 3:21 p.m. PT
Tanker award caps tumultuous period
By ERIC ROSENBERG
P-I WASHINGTON BUREAU
WASHINGTON -- The award of the multibillion-dollar Air Force contract to a team of Northrop Grumman and Airbus parent EADS to produce a new fleet of tanker jets caps a tumultuous seven-year period for the military service and The Boeing Co.
Air Force officials have indicated that they hoped their selection of the Northrop-EADS team to build the new refueling airplanes would signal that the service has moved beyond the tanker scandal that inflicted grievous wounds on the reputations of the Air Force and Boeing.
The tanker scandal mushroomed after the Air Force in 2001 came up with a plan to replace its aging tanker fleet by leasing Boeing tankers and then later buying the tankers for more than $20 billion.
Three years later, Michael Sears, then Boeing's chief financial officer, and a senior Air Force official pleaded guilty to conspiracy to violate federal conflict-of-interest rules and were sentenced to prison. The CEO of Boeing at the time, Phil Condit, was forced to resign and the company paid out a record $615 million fine for its role in the tanker scandal and other procurement infractions.
At the epicenter of the tanker scandal was Darleen Druyun, the second-highest acquisition executive in the Air Force, who admitted steering huge, multibillion-dollar contracts to Boeing in return for post-government employment for herself, her daughter and son-in-law. One of those contracts was the tanker.
The corruption was uncovered by Sen. John McCain, R-Ariz., a senior member of the Armed Services Committee and now the likely Republican presidential nominee.
McCain and other congressional leaders opposed the leasing plan almost from the beginning in 2001. McCain called the leasing arrangement -- which initially was given to Boeing without a bidding competition -- a "corporate bailout" for Boeing. The company had recently lost out to rival Lockheed Martin on a multibillion-dollar contract to develop a new fleet of fighter-bomber jets.
"Every time we turn over a rock, something really unpleasant crawls out," McCain said of his investigation into the tanker deal. "It has been the worst, sleaziest rip-off of the taxpayers that I have ever seen in my 21 years here."
In her 2004 plea agreement, Druyun described her efforts to curry favor with Boeing through the manipulation of billion-dollar Pentagon contracts. The breadth of her admission surprised government contract specialists and many in the defense industry.
After the Air Force responded to McCain's complaint and announced it would solicit competing bids, Druyun admitted sharing with Boeing proprietary pricing information that had been furnished to the Pentagon by rival Airbus.
"It was jaw-dropping," said Danielle Brian, executive director of the Project on Government Oversight, a nonpartisan watchdog group. "She was admitting to what in the worst of all worlds we thought might be happening."
Later investigations concluded that part of the problem rested in the fact that Druyun had functioned during the previous tanker competition in a bureaucratic vacuum, with little oversight from superiors or little transparency to outsiders.
Fast-forward to 2008, and the Air Force now has congressional approval to buy a new fleet of aerial tankers.
This time around, the Air Force has sought to portray the tanker contract competition as one of the most transparent big-ticket weapons purchases ever and hopes the new KC-X contract will erase the stain of the Boeing-Druyun scandal.
As part of its transparency efforts, Sue Payton, the top Air Force procurement official, said the service has had regular contacts with both Boeing and the EADS/Northrop Grumman team about the details of their competing bids as part of the service's efforts to persuade the bidders that the competition was fair and open.
The Air Force studied the competing bids and communicated back to the contractors where they were not up to snuff and then allowed them time to amend their bids.
Payton said that the Air Force's acquisition approach for the new tankers was "communicate, communicate, communicate."

Dismay in Everett over tanker deal
By JOSEPH TARTAKOFF
P-I REPORTER
EVERETT -- At Machinists Lodge 751, across the street from Boeing's plant, workers were outraged by the shocking news Friday that the Air Force contract to build refueling tankers would not be theirs.
The main gathering room had been prepped for the media in anticipation of a celebration, with an over-sized poster of a tanker being fueled, along with the words, "The American Dream Bring It Home!"
But within a half hour of the announcement that Boeing had lost the deal to a team of Northrop Grumman and Airbus parent EADS, union organizers had plastered the room with posters scrawled with slogans such as, "We Will Get a New Tanker Made in France?", "R.I.P. U.S. Built Tanker," and "How could this happen?"
When Tom Wroblewski, the president of the Machinists union, addressed the gathered workers and media and mentioned that the winner was a "European company," he was interrupted with shouts of "Boo!"
"It is a paper airplane only," he said, adding that that plant for the EADS-Northrop tanker still needed to be built in Mobile, Ala., while Boeing workers could have started work right away on a 767 tanker.
Almost all of the workers at the hall said they expected Boeing to land the lucrative contract.
Sandy Hastings, a quality assurance lab technician, who was putting up posters in the main room, said it was "a shock that they would send something for the military somewhere else other than here."
"It's a sad day for Boeing," said David Muellenbach, who was wearing a Machinists jacket and said he worked as an inspector in final assembly quality assurance for the 767 program.
"A lot of people were going to move over to the 767 tanker. A lot of people were looking forward," said Cynthia Cole, the president of the Society of Professional Engineering Employees in Aerospace, who was standing outside. "We expected to win."
A Boeing win over Northrop-EADS likely would have meant new jobs for Washington state. But the numbers were uncertain and could have been in the hundreds rather than the thousands touted by politicians.
Last year, Jim Albaugh, president and chief executive of Boeing's Integrated Defense Systems, said a tanker win would mean employment "well into the future" for some 5,000 to 6,000 men and women who work on the commercial 767 program in Everett.
Boeing said that its IDS work force to support the program probably would have peaked at more than 1,000 during the development of the 767 tanker for the Air Force, with 500 people on the program by the end of this year.
Most of those IDS tanker jobs would have been in the Puget Sound area, with some at Boeing's military modifications center in Wichita, Kan., where air-refueling equipment was to be added. But it's not clear how many would have been new jobs. Boeing shifts workers from one military program to another as needed.
A person familiar with the program, who did not want to be quoted by name, said around 450 employees actually assemble 767s on the factory floor. There are several times that many Boeing 767 support people, including engineers. The person said there are too few 767 mechanics for current production rates, and overtime is high, and estimated that Boeing would have needed at least another 200 to 300 more workers on the 767 line with the Air Force tankers.
Outside the union hall, workers held signs asking colleagues to join them inside for a protest. Car after car honked in support. Some cars turned in.
Allen Neph, a union steward with the 787 program, who was holding a sign, saying "Protest Here!" said he feared job cuts.
"It means a lot of jobs could be going away, because our government chooses to pick another company," he said. He said that the news spread quickly at the Everett plant and there was a general feeling of "disgust."
One man -- who identified himself only as Larry -- was sitting on the trunk of his car with a sign in his hands. He said he was sitting away from the other protesters because he had skipped work to show his support -- and did not want to get caught on camera.
P-I reporter James Wallace contributed to this report. P-I reporter Joseph Tartakoff can be reached at 206-448-8293 or joetartakoff@seattlepi.com.

Last updated February 26, 2008 9:08 p.m. PT
Gregoire: Inquiry possible if Boeing loses tanker
Announcement of $40 billion contract may come today
By STEWART M. POWELL
P-I WASHINGTON BUREAU
WASHINGTON -- Gov. Chris Gregoire on Tuesday raised the possibility of a congressional inquiry or a formal legal protest if The Boeing Co. fails to win a huge defense contract to build 179 air-to-air refueling tankers for the Air Force.

Speaking to reporters after meeting with Washington state's congressional delegation here, Gregoire said she expected that Boeing will prevail in its competition against a team of Northrop Grumman Corp. and Airbus parent EADS to win the contract.
She predicted the contract could bring 9,000 new jobs to the Everett area over a 20-year span. Boeing facilities in Everett build the 767 commercial airliner that is the model for the company's tanker planes.

Gregoire told reporters she was optimistic about Boeing's prospects after she checked with the Pentagon during her visit to the nation's capital for the winter meeting of the National Governors Association.

The Air Force's decision on the winner of the tanker competition could be announced as soon as Wednesday afternoon. The new aerial tankers will replace 502 venerable Boeing KC-135 tankers with an average fleet age of 46 years.

The initial contract is expected to be valued at $40 billion but could rise to as much as $100 billion in future years.

"I'm banking on us getting it," Gregoire said. "I just think we win if it's done absolutely without politics, based on experience, work force, all of that. So I'm feeling good about this.

"If we don't win, then I think there'll be a lot of questions asked about why in the world would Boeing, with that work force, that expertise, that experience, that history -- how could they not have gotten this?"

Asked if she expected the Democratic-led Congress to intervene if Boeing failed to win the contract, Gregoire replied: "My sense is there'll be a lot of questions raised and then we'll get into the protest."

Federal law allows losing bidders to appeal to the Government Accountability Office -- the auditing branch of Congress -- if they believe a federal agency violated procurement rules when it awarded a contract.

A protest would delay the program while the GAO investigated the Air Force process that led to selecting the winning bidder. Any decision by the GAO upholding the protest could require the Air Force to start all over again with new contract bids.

Both companies have declined to discuss what they would do, if anything, should they lose the tanker contract.

Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee and head of the Democratic caucus in the Senate, has urged both Boeing and the Northrop Grumman/EADS team to accept the Air Force selection rather than launch a formal protest.

After its manufacture in Everett, a Boeing tanker would then fly to Wichita, Kan., for final conversion into a "flying gas station," with air-to-air refueling booms and other military equipment.

Regardless of whether Boeing wins or loses the tanker contract, the Boeing work force in Everett will remain stable for at least the next two years, working to fill orders for the 777 and 787 aircraft, Gregoire said.

"You have to go out a couple of years to change anything for us," Gregoire said. "But that work force is as enthused, as I will tell you. I've met with them. They want this, they want it badly. They're ready."

Gregoire said she did not press any Bush administration officials or Pentagon officials about the contract deal during her capital visit.
"It was too late," Gregoire said. "I went to check on it."
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